The U.S., France and Britain conducted an air attack on Syria over the weekend, stating that their target was the Syrian government’s chemical weapons program. It appears there was damage but no casualties, although there are some reports that three people were injured. I wrote last Thursday that President Trump seemed to be backing away from launching a real war, and I still think I was correct – the attack was very similar to what he did about a year ago, just bigger. It seems that the Russian forces in Syria did not get involved and were not targeted. Additionally, it is also clear that everyone in Syria had several days to prepare for the strike.
What was the purpose of it? There are plenty of conspiracy theories, but what I think it came down to was the three countries wanting to show it they are prepared to use military force to back up red lines, and to deliver a slap to Syria, Russia and Iran. A shot across the bows, and a stance against chemical weapons. The three countries involved will now happily back away if the Syrian government does not use chemical weapons again. The
What does this mean for markets right now? Perhaps risky assets will get a small boost now that fears of a clash between the U.S. and Russia have receded for the time being, but I think the markets will not react at all. What does this mean going forward? That is the important question. There are two things to watch out for. First, if there is a credible report which the U.S. looks inclined to believe of a further use of chemical weapons by the Syrian government, the U.S. will almost certainly respond more strongly and target the Syrian government more directly. This could cause the Russians to get involved in a clash. Second, if there is some kind of attack against Israel coming from Syria which Israel publicly blames on Iran or the Syrian government, you can expect Israel to respond very forcefully. These two scenarios would probably trigger something much more serious, which would rock markets.
